China is reopening its securitised bad debt market with two deals worth Rmb534m ($81.6m) this month, eight years after regulators shuttered the market at the onset of the global financial crisis.
Securitisation is among several methods adopted in an effort to whittle down China’s mounting bad debt. Net debt grew to $25tn in the first quarter of the year, equivalent to a record 237 per cent of gross domestic product.
Much of this sits on bank balance sheets, spooking investors who fear that the slowing economy will result in more loans souring. The official average non-performing loan ratio at China’s commercial banks was 1.75 per cent at the end of March but analysts reckon it could be as high as 19 per cent and eventually require a government bailout.